Out of state purchase as a first time investment

[Paul S.]

Hi,

As a first time investor is it advisable not to pursue and out of state purchase? I am looking to buy in downtown chicago and I can only fly there if something happens. Can I rely on property managers to rent it out (to the correct party) and also help proactively in fixing things? I understand I lose a percentage of the rent if I hire a property manager but still. Are there any other issues I need to be aware of if I buyout of state?

- Paul

[Jon Holdman]

I urge great caution. This is a bad strategy. You're mixing fix and flipping with rentals and that destroys both approaches.

With a fix and flip, you want to be in and out quick. Less than six months, not 2-3 years. You need a cheap price, enough work to do to push up the value much more than you have to spend, and then you need to get out.

For a rental, you need a cheap enough price to make it cash flow. You need to do a bullet proof rehab job to make it nice enough to rent.

If you buy, do a fix up (almost ALWAYS required for investment properties) and then rent for 2-3 years, you'll end up re-doing the rehab when you sell. Especially since a rental grade rehab (looks good but is hard to damage) is different than what appeals to retail buyers (the nicest finishes that fit within the area.)

Buying and selling costs these days can easily eat up 12-13% of your selling price. I do not believe we will see that amount of appreciation anywhere in the US in the next 2-3 years. Rehabbers make money because they buy junkers for cheap prices, fix them up and sell retail. The rule of thumb is that your purchase plus rehab must be under 70% of the eventual selling price.

I think you need to reconsider your strategy. Either focus on fix and flips (close to home, I cannot possibly imagine trying to do one of these long distance) or rentals. You're trying to skirt a middle ground and getting the bad sides of both appraoches.